- The Federal Government of Nigeria will cover the revenue shortfall for Kano Electricity Distribution Company (KEDCO).
- NERC’s September 2024 order requires KEDCO to upgrade infrastructure, secure renewable energy capacity, and adhere to service commitments.
To address the financial strain of the Kano Electricity Distribution Company (KEDCO), the Federal Government of Nigeria has committed to covering the revenue shortfall stemming from the disparity between cost-reflective tariffs and the tariffs paid by KEDCO’s customers. This intervention was outlined in a Supplementary Order issued by the Nigerian Electricity Regulatory Commission (NERC) on September 12, 2024, effective September 1, 2024.
This measure is part of the Federal Government’s strategy to transition towards cost-reflective tariffs while safeguarding vulnerable consumers during this period. The Supplementary Order, issued under the Multi-Year Tariff Order framework, addresses the financial imbalances caused by economic factors such as inflation and exchange rate fluctuations.
NERC’s directive highlights that the Federal Government will cover the revenue gap between the approved cost-reflective tariffs and the actual tariffs paid by end-users. This move stabilises the electricity sector financially while transitioning to more sustainable pricing models.
The order comes after NERC reviewed vital economic indicators, including the Naira to US Dollar exchange rate and inflation rates. For instance, the exchange rate was set at N1,601.50 per US Dollar. Nigeria’s inflation rate, at 33.40% as of July 2024, was factored into the revenue requirements and tariff adjustments for the remainder of the year.
To ensure KEDCO meets its financial and service obligations, the Nigerian Bulk Electricity Trading Company (NBET) will fund tariff shortfalls. This will help KEDCO fully settle invoices with power-generating companies, thereby maintaining stability in the power supply chain.
NERC has also outlined specific service expectations for KEDCO under the Service-Based Tariff framework. KEDCO must adhere to commitments regarding minimum hours of electricity supply across various tariff bands. Additionally, the order mandates that KEDCO upgrade its infrastructure and secure at least 27MW of embedded generation capacity, requiring 50% of this capacity to come from renewable energy sources.
The Federal Government’s financial support aims to protect consumers from the immediate impact of higher tariffs while ensuring that KEDCO fulfils its service and infrastructure commitments. NERC will continue to monitor KEDCO’s adherence to these requirements to maintain service quality and sector stability during the transition.